The High Court of Kerala has held that dealers who facilitate the exchange of used-cars with new cars, or re-sale of used cars, are not liable to pay service tax. The ruling came in Commissioner of Central Excise vs. M/s Sai Service Station Ltd., by dismissing the appeals filed by the Department of Central Excise against the order of CETSTAT in favour of the dealer.
The dealer provided options to the customers to exchange their used cars for new cars, by paying the differential amount of the values of the old car and new car. Also, the dealer provided services for re-sale of used cars. A customer intending to avail such services had to deliver his vehicle along with its registration certificate to the dealer. The customer also has to deliver signed blank documents in Form 29 and 30 of the Central Motor Vehicle Rules, which are intended to be used for transferring the registration of vehicle upon re-sale, in accordance with the provisions of Motor Vehicles Act. The dealer would then refurbish the car, and display it in its showroom offering for re-sale.
The Department was of the view that the above activity of the dealer amounted to a ‘service’ exigible to Service Tax as per the Finance Act under the head ‘Business Auxiliary Services”. Hence, demand notices were issued. The dealer challenged it before the Commissioner, who repelled the challenge. When the matter was carried in appeal before the CETSTAT, it ruled in favour of the dealer.
The whole controversy revolved around the issue whether the dealer’s activity is conceptually a ‘sale’ or a ‘service’. According to the Department, no sale of vehicle took place between the owner of the used car and the dealer, because there was no change of registration of vehicle done on delivery of used car by the owner to the dealer. The dealer merely collected Form 29 and 30 in blank from the owner. The transfer of registration is done only when the car is re-sold to another buyer. Therefore, the Department contended that this was only a service of enabling the owner to find a buyer for his used car, and not a case of the dealer re-selling the car in the capacity of its owner.
However, the Court chose to accept the contentions of the dealer. The Court held that transfer of registration was not a pre-condition for completion of sale of vehicle. A vehicle is a movable good, and its sale is governed solely by the provisions of the Sale of Goods Act. As per provisions of Sale of Goods Act, the transfer of property in goods in deliverable state takes place when the contract is made. So a sale of goods takes place when the dealer takes possession of the used car from the owner, and its tile is transferred to the dealer. Registration of vehicle is an event which happens subsequent to sale. Registration is only a statutory requirement imposed by the Motor Vehicles Act for using the vehicle in a public place.
First we must acknowledge that the sale and the registration of the sale are two distinct acts. The sale of a motor vehicle, movable property, takes place under Section 19 of the Sale of Goods of Act. But if the transferee intends to get statutory protection as the owner of the transferred vehicle, he alone must invoke Section 31 of the Act(Motor Vehicles Act) to have the vehicle transferred on to this name.
Therefore, the ownership of vehicle gets transferred to the dealer, notwithstanding the fact that the registration of vehicle is not transferred in the records of RTO. When the dealer re-sells the vehicle, it is done in the capacity of an owner. On these reasons, the Court held that a sale of vehicle took place when the owner delivered his used car to the dealer. .
The Court also took note of the fact that owner was paid the price upfront, and the subsequent market fluctuations had no bearing on the price the owner was getting. In some cases, it so happened that the market value of cars dipped, resulting in the dealer effecting re-sale at a loss. So, this was a pure and simple case of re-sale of cars done by the dealer after getting its ownership.
So, the Court held that this cannot be characterized as a service under the head ‘Business Auxiliary Service’, attracting liability to pay service tax. Hence, the appeals were dismissed, upholding the order of CETSTAT.
Read the Judgment Here